Overdrafts - MoneySmart

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<strong>Overdrafts</strong> What are unarranged overdrafts XX An accidental or unarranged overdraft occurs if you make a payment but there are insufficient funds in your bank account to cover it. Your bank or building society honours the payment anyway, which creates a debt. XX While the policy varies between financial institutions, most cheque or savings accounts allow unarranged overdrafts to take place. You will usually find that you have agreed to this when you accepted the terms and conditions upon opening the account. XX Some banks will honour your overdrawn payment without charging you an unarranged overdraft fee, particularly if you are a valued customer or if it is your first time. Others will charge you a hefty penalty fee or a penalty interest rate on the overdraft amount. TIP Things to know about unarranged overdrafts XX Ask your bank about their policy on unarranged overdrafts, so that you are aware of the possible penalty fees and interest rates, should you exceed your available balance. XX Penalty fees for exceeding your available balance can be anywhere from $10 to $30. XX Some banks don’t charge a penalty fee, but impose a penalty interest rate on the overdrawn amount. XX Keep in mind that the amount overdrawn plus the penalty fee is repayable immediately. www.moneysmart.gov.au 2
<strong>Overdrafts</strong> Six steps to smarter borrowing Step 1. Work out if you can afford to borrow Step 2. Shop around for the best deal Step 3. Know who and what you’re dealing with Step 4. Keep up with your repayments Step 5. Get help if you can’t pay your debts XX Before you decide to get an overdraft, our budget planner at www.moneysmart.gov.au to see exactly where you spend your money and how much you can afford in repayments. XX Allow for interest rate rises and anything that might affect your future income (such as changing jobs). XX If the overdraft needs to be repaid on demand, how will you repay it XX If you do decide to arrange an overdraft facility, take the time to compare interest rates, product features and fees and charges. Even a small difference in the interest rate can make a big difference to what you have to pay. Shop around online to compare products or use our multi-loan calculator at www.moneysmart.gov.au. XX Anyone who wants to engage in credit activities (including brokers) must be licensed with ASIC or be an authorised representative of someone who is licensed. If they aren’t, they are operating illegally. XX There is currently an exemption from licensing for credit assistance provided through some businesses (for example, retail stores and car yards). While the store may be exempt, the actual credit provider must still be licensed. If you are unsure who the credit provider is, ask the person you are dealing with to point out the name in your credit contract. XX To find out if a credit provider is licensed, visit www.moneysmart.gov.au or call ASIC’s Infoline on 1300 300 630. XX Anyone engaging in credit activities (for example, by providing credit or assistance to you) must give you either a credit guide (with information such as their licence number, fees and details of your right to complain) or a written notice with details of your right to complain about their activities. XX You need to make sufficient repayments to keep the overdraft debt below the agreed limit. Even though your overdraft may not have a set repayment schedule, you could be charged penalty fees if you don’t pay the interest on time. And the sooner you pay off your balance, the less interest you’ll have to pay. XX Don’t forget to cancel the overdraft once you don’t need it anymore and it has been repaid. XX Act quickly if you are having trouble making repayments. It may be difficult to face the problem, but ignoring it will only make things worse. XX If you can’t make the full repayment, pay what you can. Contact your credit provider without delay. XX If you are experiencing financial difficulties, you have the right to apply to the credit provider for a hardship variation. If the credit provider refuses, you can complain to its independent dispute resolution scheme for a variation on the grounds of hardship (see step 6 below). XX There are places you can go for help – visit www.moneysmart.gov.au for sample letters and information about support services such as financial counselling and legal assistance, call the National Financial Counselling Hotline on 1800 007 007 or call ASIC’s Infoline on 1300 300 630. XX See our factsheet Can’t pay your debts at www.moneysmart.gov.au. www.moneysmart.gov.au 3
Page 1: Overdrafts Factsheet August 2011 Wa

Overdrafts - MoneySmart

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